What Happened to Trump’s 45% China Tariff? North Korea Happened

May 6 2017

Donald Trump began his campaign for the presidency by promising a physical wall to shut out Mexicans, they being rapists and thieves, and a tariff wall to shut out imports, particularly a 45% impost against China. Together the barriers would return "massive numbers of jobs" to America.

But much as he thought "Nobody knew that healthcare could be so complicated", he has since discovered how complicated the world is. In a desperate attempt to enlist China's help against North Korea, he told the Wall Street Journal that in his very first meeting with China's President Xi Jinping, he offered better trade terms. He had told Mr. Xi that his administration could not go on allowing America's huge trade deficit with China. "But you want to make a great deal?", Trump says he told Xi. "Solve the problem in North Korea". He went on to tell the Journal, "That’s worth having deficits. And that’s worth having not as good a trade deal as I would normally be able to make.”

His billionaire Commerce Secretary, Wilbur Ross, would have none of that. He wants "tangible results" from the talks with President Xi, and soon. The objectives are "to reduce the trade deficit quite noticeably" and "increase total trade", a combination that can only be accomplished by China importing a great deal more from the U.S.

Xi agreed to a 100-day plan on trade, which would be unusually rapid, but perhaps his intent was to forestall the topic while still in the U.S. With Xi gone, Trump resumed his conduct of foreign policy by Twitter:

In Trump's own 100-days, he has been dealt a far more important problem than trade: North Korea's advances in missiles, its nuclear tests, and deranged threats from its President Kim Jong-un to turn Seoul into a "sea of fire". But he is having difficulty living up to the promises that won him the office, so the imbalance of trade with China should not be neglected. Maybe a little less golf and television?

bad start

Trump has already dropped his campaign promise to brand China as a currency manipulator, perhaps after being made aware that for some time now China has intervened in the currency markets to bolster the value of the yuan. It was Obama who failed to wield that weapon when China was clobbering us, driving down its currency's value to make its products artificially cheap. The problem, Trump now says, is that the dollar has grown too strong "because people have confidence in me".

Trump had rattled China by taking a call some two months before he took office from Taiwan's president, Tsai Ing-wen, the first contact between the leaders of the two countries since 1979. Two weeks later on a talk show Trump asked "why we have to be bound by a One China policy unless we make a deal with China having to do with other things". China views Taiwan as a part of China. To keep the peace, when the U.S. established relations with Taiwan in 1979, we agreed not to view it as its own country, going along instead with the mainland's insistence on "one China, two systems". There was some agreement with Trump  why do we go along with this Chinese charade without at least getting something in return  if not trade adjustments, our need for China to pressure North Korea? That was certainly true for perennial cold warrior John Bolton, an ambassador to the U.N. under George W. Bush, who was all for ramping up sales of military gear to Taiwan in a Wall Street Journal op-ed and "stationing military personnel and assets there". So it was disappointing for some that the President backed down in his first phone conversation with Xi Jinping after taking office. The sober and thoughtful who fear making any move that might upset our adversaries were relieved  adversaries who have no such timidity when dealing with us.

Trump, though, did get something in return. The Chinese government gifted Trump at unheard of speed with the emolument of preliminary approval of 38 trademarks of his name. Daughter Ivanka got three of her own.

the art of their deal

China joined the World Trade Organization (WTO) at the end of 2001 after lengthy negotiations reduced its tariffs, but as a "developing" nation, it was allowed to retain those tariffs with the assumption that they would be diminished as the country grew stronger economically. But they haven't. China piles multiple charges on imports. Import duties range from 0% to 100%, averaging over 12%. They are tacked onto the full cost of the goods, even including shipping and insurance. Then comes a consumption tax on imports of alcohol, gasoline, jewelry and autos ranging from 1% to 45% applied to that full cost plus the duties. And then, on top of that combined total  full cost, duties, and consumption tax  comes a 17% (in some cases 13%) value added tax (VAT). The Chinese are not a trading nation, they are a mercantilist nation set on making foreign produced goods so expensive as to keep imports to a minimum.

This is what the United states has put up with for the 16 years since China was admitted to the WTO, all the while passively watching China become the world's new super power, building its military with our dollars, a military aimed at us. We have put up with quotas and restrictions on agricultural products. We have tolerated the Chinese subsidizing businesses, so many of which are state-owned, to enable them to sell at lower prices that have often driven U.S. counterparts out of business. Photovoltaic solar panels were an American invention but China now has a 90% market share, for example.

In 2015, U.S. exports to China totaled $116 billion. Imports totaled $482 billion. That's a deficit with China of $366 billion. That so low-cost a product as soybeans are our largest export to China says volumes about what the $116 billion would have become had we demanded fair-cost entry of automobiles and other high ticket manufactures into their market.

More damaging still has been the lust for momentary profits by U.S. corporations that have surrendered what trade secrets have not already been stolen by cybertheft by agreeing to technology transfers to Chinese entities as the price of admission into the Chinese market. China requires that our companies enter into joint ventures and hand over our industrial know-how to our so-called local "partners". After all the years of making that mistake, giving away our future, we are still doing it. Ford has just announced it will bring proprietary electric car technology to China, despite industry misgivings, handing it over to Changan Ford Automobile, the joint venture partner forced upon it by the China regime bent on technology appropriation.

This is part of its "Made in China 2025" plan that the U.S. has evidently been unaware of until very recently. China's secret goal is to become nearly self-sufficient, producing on its own everything the nation now imports in these technological categories, and then exporting them to the world. It is moving past the last century's raw materials industries and aiming at industries such as 3-D printing, computer chips, robots, aircraft and electric autos. Germany’s Mercator Institute for China Studies unearthed some of the objectives of the plan in semiofficial documents: China is aiming to produce 80% of the world's renewable energy equipment, 70% of industrial robots, 40% of mobile phone chips, etc.

It's a $300 billion plan funded by the government, with a substantial kitty for buying U.S. companies to take over their technology. The United States has no industrial plan, no energy plan. In our democracy, one president tries to press industry to move toward new sources of energy; the next president rips up the plan and promotes a return to coal. With the Trump administration's abandonment of renewable energy and its threat to, if not withdraw from the Paris accords, at least do nothing to honor its pledges, China sees the opportunity to completely take over the green revolution and create products to dominate world markets, leaving the U.S. as customer only.

sounding retreat

In contrast, the U.S. retrenches, Trump having adopted the fortress America doctrine of Steve Bannon. On his first day in office, he buried the Trans Pacific Partnership, or TPP, which would have created a trade pact between 12 of the nations other than China that border on the Pacific ocean. These pages have railed against the TPP, but for the excessive powers it gave to multinational companies over governments (see our "Corporations Press for Power Grab in Pacific Trade Pact" from over three years ago) but not against Obama's hopes to create a trading bulwark to ward off Chinese dominance in the region. Trump's action immediately caused the orphaned nations to reassess their futures and look to China's rival alliance, the Regional Comprehensive Economic Partnership (RCEP) that welcomes all but the U.S. and will now set the rules for the region, including favoring its state-owned companies. Undermining the pact  it collapses without the U.S. as a member  was a prime tenet of the America First nationalist movement that could make us America Only.

Trump has undoubtedly backed away from his 45% tariff against China, but Paul Ryan is advancing an equivalent across-the-board plan to tax all imports 20% (see "Our Tax Code Is a Mess. So Will Be the Battle to Change It"). Far more sensible is to deal with China reciprocally. It closes off some two dozen sectors  insurance, for example  to American entry altogether. The United States should erect equivalent tariffs on, or block entry to, sectors important to us strategically. Exports from firms that receive state funding under the “Made in China 2025” plan should be blocked or charged stiff countervailing duties. We should blacklist Chinese companies that have stolen U.S. industrial know-how and intellectual property.

When China declares certain industries off-limits to American investors, we should counter by blocking Chinese companies from buying American firms in industries that suit our purposes. And China should not expect to export cars to the U.S. without being hit by the matching tariffs that now make U.S.-made cars prohibitively costly for Chinese citizens.

Objections by the WTO would be a welcome invitation for the U.S. to make it noisily apparent how the organization continues to do nothing to end China's anti-competitive practices of one-sided tariffs and subsidies to state owned businesses, and to force the WTO to clean up its rules and speed up its glacial processing of complaints which can take years. We shouldn't wait for rulings. By then our companies are already out of business. Better to take immediate action and if ruled against, pay the fines.

A test case for Trump: Obama filed a case with the WTO accusing China of subsidizing aluminum, causing U.S. companies to teeter toward bankruptcy. A Washington trade practices lawyer named Alan Price says it is apparently (and unbelievably)

"the first time there is a systemic challenge to China's financing and building out of its massive industrial capacity from highly subsidized state-directed financing. They have a lot to lose beyond the aluminum industry"

because aluminum isn't the only industry China subsidizes. So, President Trump, let China go through the WTO process and run that risk. But in the meantime, it is past time that we slap targeted tariffs on aluminum and other metals we believe are subsidized and declare an end to playing the fool so that China can become the world's largest economy.

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